Barclays has been accused of fraud, deceit, and making misrepresentations to investors by the New York Attorney General in the latest scandal to rock the British lender.

The prosecutor last night announced it was set to file a ‘securities fraud’ lawsuit against Barclays for misrepresenting the safety of its US-based ‘dark pool’ system, an alternative way of trading that uses computerised high frequency buying or selling transactions to give traders advantages over other market participants.

Barclays shares slumped by as much 8 per cent in London today - equivalent to more than £3 billion - but they recovered slightly to close 14.16p or 6.2 per cent sown at 215.84p.

The lawsuit, spearheaded by New York Attorney General Eric Schneiderman, alleges Barclays runs the dark pool to favour aggressive high frequency traders and has actively sought to attract them by giving them systemic advantages over other traders in the pool.

Fresh blow: The US investigation has been aided by a number of former Barclays employees, who witnessed much of the conduct under investigation.

A Barclays spokesman said: ‘We take these allegations very seriously. Barclays has been co-operating with the New York Attorney General and the SEC (Securites and Exchange Commission) and has been examining this matter internally.

'The integrity of the markets is a top priority of Barclays.’

The complaint, filed in state Supreme Court, portrays ‘a flagrant pattern of fraud, deception and dishonesty with Barclays clients and the investing public,’ the attorney general said.

The lawsuit asks the court to order Barclays to pay unspecified damages.

Dark pools leapt into the public consciousness thanks to Michael Lewis’s book ‘Flash Boys’ which claimed the shadowy trading systems – which allow virtually anonymous transactions to take place – enable juicy earnings for high-frequency traders profiting from access to brokerage clients.

Barclays’ activity has come under the microscope after former employees handed to prosecutors internal bank communications which revealed that while the bank told its clients it would keep predatory high frequency traders out of its dark pool, it didn’t prevent that happening.

That meant it effectively underrepresented the concentration of predatory high-frequency trading taking place.

The complaint also alleges Barclays falsified marketing material purporting to show how much and the type of transactions high-frequency traders operating in its dark pool were making.

‘The facts alleged in our complaint show that Barclays demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit,’ Attorney General Schneiderman said.

‘Barclays grew its dark pool by telling investors they were diving into safe waters.’

According to the lawsuit, Barclays’ dark pool was ‘full of predators – there at Barclays’ invitation’.

Barclays is alleged to have heavily promoted a service called Liquidity Profiling, which the bank claimed was a ‘surveillance’ system that tracked every trade in Barclays’ dark pool in order to identify predatory traders, rate them based on the objective characteristics of their trading behaviour, and hold them accountable for engaging in predatory practices.

In reality, the lawsuit claims, Barclays never stopped any trader from participating in its dark pool, regardless of how predatory it was.

The bank, headed by chief executive Antony Jenkins, also did not regularly update the ratings of high frequency trading firms monitored by Liquidity Profiling.

The Attorney General also alleges that Barclays ‘overrode’ certain Liquidity Profiling ratings – including for some of its own internal trading desks that engaged in high-frequency trading – ‘by assigning safe ratings to traders that were otherwise determined to be toxic’.

The investigation has been aided by a number of former Barclays employees, who witnessed much of the conduct under investigation.

The attorney general’s office quoted one Barclays employee as saying: ‘I had always liked the idea that we were being transparent, but happy to take liberties if we can all agree.’

‘No regulator – no matter how broad their authority – can succeed on its own,’ said Schneiderman.

‘I want to personally thank those that have courageously reported wrongdoing to our office and encourage others to do the same.’

Schneiderman launched his probe – dubbed Insider Trading 2.0 – a year ago to look into various special relationships and early access to market- moving information he deems as ‘far too prevalent in today’s electronic markets’.

The bank’s shares dropped 4 per cent in early trade today, down 10.16p to 219.8p..